The decorations are down and stored away for next Christmas. The house looks bare, denuded of the bright lights and garlands, writes Michael Culloty

Nothing much left of the festivities but memories of the good times, the giving and receiving of gifts. However, if you resorted to overspending at Christmas the reality of repaying your credit cards and other loans now becomes a reality. The costs must be built into your budgeting for the next few months. If you have overstretched yourself then the time for urgent action is now.

There is considerable pressure on families on low income or on social welfare at Christmas to make up to their children for all the things they feel they had to deprive them of during the year. This often causes them to borrow from the local credit union or, if that is not an option, to access credit from a moneylender who is prepared to advance cash without too many questions and can charge up to 187 per cent APR. These families, already on a meagre income, will now find it extremely difficult to build their loan repayments into an already tight budget. The cycle of borrowing from Peter to pay Paul begins postponing the day of reckoning when the reality of the situation will have to be faced.

If you now find yourself in a financial mess it can be difficult to know where to start, particularly if you owe money to a number of credit institutions and are in arrears with your utility payments.

A good New Year's resolution for all, but particularly for those who have overshot their personal financial runway, is to make out a budget. This is the first step on the road to financial recovery. A budget is a simple method of outlining the money you expect as income and how you plan to spend it.

A budget plan, if it is to succeed, must include all household income as well as expenses and commitments. A budget sheet can be accessed from the Money Advice and Budgeting Services website www.mabs.ie or you can just divide a page in two with income on one side and priority outgoings on the other. Be realistic and honest with yourself when recording your income and your spending. The first time you see everything written down can be a bit of a shock. If you have been finding it hard to make ends meet the figures revealed by your budgeting exercise will show you why. You should now have an accurate picture of your correct financial situation.

If you find that you have not enough money to make ends meet then there are two options open to you, that is maximise your income or reduce your spending. You can maximise your income by taking on extra work or checking that you are receiving your correct tax and welfare entitlements.

Having looked realistically at your situation and found that your living expenses (without taking into account arrears and loan repayments) are more than your income then you may need independent advice on what to do. There is free, independent and confidential advice available to you through the Money Advice and Budgeting Service (MABS). Details of the service nearest you can be found in your local telephone directory.

The next step in restoring your financial good health is to contact all your creditors explaining to them that you are in financial difficulty and are in the process of trying to resolve these difficulties. Ask them to put on hold any action they may be contemplating to recover the debt and ask them to suspend interest and other charges. Assure them that you will be in contact with them with a proposal within a short period.

Some debts are more important than others as the law gives different weight to their recovery. It is therefore important to decide on a priority order for your creditors before you make any new offers of repayment. Priority debts are those that could lead to your house being repossessed, you being evicted, having utility services disconnected, being fined or even sent to prison. If you have a budget surplus it is to these creditors that you first make realistic proposals.

Secondary debts are those that arise from loans received without having to provide any security. Personal loans, credit cards, store cards, credit union loans and moneylender loans are all examples of secondary loans. You can be taken to court if you have failed to keep to the terms of the loan agreement you signed. However, as long as you don't ignore the problems and you respond to court documents with details of your financial circumstances you will generally only have to pay what you can afford.

Now that you have contacted all those you owe money to and have put them in a priority order you now decide what you should offer to each of them. Priority debts should get the lion's share of what you have available for debt repayments but make sure you allocate something to all your creditors. Write again to your creditors and explain that you have completed a full assessment of your current financial situation, taking into account all your living expenses and commitments. As a result of this assessment you are now putting forward an offer of a certain amount per week/month. Your local MABS office can provide you with a booklet with sample letters to creditors if necessary. Make sure you include with your letter a copy of your budget. This generally is effective in persuading them to accept a reduced payment in line with your ability to pay.

Remember there are always solutions to financial problems. The solution may not be the one you would want or like but there is a solution no matter how complex or hopeless your situation may appear to you.

If you foresee difficulties arising don't procrastinate, contact all your creditors early, make out an honest budget and make realistic offers. Remember there is free, independent and confidential advice available to you if you feel you cannot cope yourself.

Visit www.mabs.ie.

The author is the eastern regional manager of the Money Advice and Budgeting Service